Iraq About to Flood Oil Market in New Front of OPEC Price War

(Bloomberg) — Iraq is taking OPEC’s strategy to defend its share of the global oil market to a new level.

The nation plans to boost crude exports by about 26 percent to a record 3.75 million barrels a day next month, according to shipping programs, signaling an escalation of OPEC strategy to undercut U.S. shale drillers in the current market rout. The additional Iraqi oil is equal to about 800,000 barrels a day, or more than comes from OPEC member Qatar. The rest of the Organization of Petroleum Exporting Countries is expected to rubber stamp its policy to maintain output levels at a meeting on June 5.

While shipping schedules aren’t a promise of future production, they are indicative of what may come. The following chart graphs planned tanker loadings (in red) against exports.

As in previous months, Iraq might not hit its June target – export capacity is currently capped at 3.1 million barrels a day, Deputy Oil Minister Fayyad al-Nimaa said on May 18. Still, any extra Iraqi supplies inevitably mean OPEC strays even further above its collective output target of 30 million barrels a day, Morgan Stanley says. The following chart shows OPEC increasing output in recent months against its current target.

Defying the threat from Islamic State militants, Iraq has been ramping up exports from both the Shiite south – where companies like BP Plc and Royal Dutch Shell Plc operate – and the Kurdish region in the north, which last year reached a temporary compromise with the federal government on its right to sell crude independently.

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Alberta Election Result Latest Blow to Oil Industry

(Bloomberg) — Canada’s energy industry, already buffeted by low oil prices and stalled pipeline projects, is bracing for more setbacks after a New Democratic Party that pledges to raise corporate taxes was swept to power in Alberta.

The NDP, led by Rachel Notley, ended a 44-year Progressive Conservative dynasty by winning a majority of districts in elections Tuesday, according to preliminary results. The NDP promises to boost corporate taxes, review the government’s take on energy revenue, scale back advocacy for pipelines and phase out coal power more quickly.

“It’s completely devastating,” for energy companies and investors, Rafi Tahmazian, who helps manage C$1 billion ($831 million) in energy funds at Canoe Financial LP in Calgary, said on Tuesday. “The perception from the market based on their comments is they’re extremely dangerous.”

The NDP victory may spark a sell off in Canadian energy stocks and stall investment in the oil patch, which is counting on more than C$500 billion in spending over the next three decades in the oil sands alone. The Standard & Poor’s/TSX Energy Index of 64 Canadian oil and gas stocks fell 1.4 percent Tuesday before results came out, the biggest drop in a month.

Energy producers in Alberta, the heart of the Canadian industry, are cutting jobs, reducing drilling and shelving billions of dollars of new investment because of the oil price collapse. While U.S. crude’s rise to around $60 a barrel from a six-year low in March has injected fresh optimism into the industry, executives are preparing for a slow recovery to levels that would make new projects profitable in the oil sands, the world’s third-largest reserves.

Clear Negative

“Just when we’re starting to look like we’re recovering here, we get another layer of uncertainty,” said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel Ltd. in Calgary. Pelletier sold some oil and gas shares as polls ahead of Tuesday’s vote forecast an NDP win, he said. “It’s a clear and material negative.”

U.S. investor clients of Calgary-based investment bank AltaCorp Capital Inc. were also pulling positions in Canadian stocks in the run up to the election, anticipating an NDP victory, said analyst Jeremy McCrea. Energy shares, particularly oil-sands operators, are poised to fall over the threat of higher royalty rates, he said.

Suncor Energy Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd. and Cenovus Energy Inc. are among Canada’s largest oil-sands operators.

“Now is not the time for a royalty review,” said Jeff Gaulin, vice president of communications at the Canadian Association of Petroleum Producers. “The uncertainty that that would create for investment would jeopardize jobs in Alberta.”

Good Partner

The energy lobby group is confident it can nonetheless work with Notley’s NDP, Gaulin said.

“Our government will be a good partner” for the energy industry, Notley, 51, said in her victory speech.

There’s a precedent for a stock sell-off based on Alberta energy policy. Canadian oil and gas stocks lost ground to their U.S. peers around October 2007 when the Progressive Conservative government raised royalty rates. The shares traded about 14 percent lower for more than a year, until early indications the government would consider reversing the hikes, according to an AltaCorp analysis. In 2010, the PCs led by Ed Stelmach retreated from most of the royalty boost.

Investor Concern

“If you are invested in energy stocks, you should be concerned,” McCrea said. Drillers already face higher costs to extract oil and gas in Alberta than in many jurisdictions, so an increase in royalties would make the province even less competitive, he said.

The number of oil rigs deployed in Canada’s biggest energy-producing province is at its lowest since 2009 after oil lost half its value last year, according to Baker Hughes Inc. data. Already, Western Canada’s oil growth is poised to slow by 59 percent next year, according to the Canadian Energy Research Institute.

Oil growth in the region will slow to 17,000 barrels a day by next year from 41,000 barrels a day in 2014 as conventional production from drilling declines and stays below last year’s levels through the rest of the decade, according to CERI.

Keystone XL

While not in the party’s official platform, Notley has said she will not advocate for the Keystone XL and Northern Gateway pipelines, oil export projects that have come under fire from environmental opponents of the oil sands and communities fearful of spills along their paths. She has said that Kinder Morgan Inc.’s Trans Mountain line and TransCanada Corp.’s Energy East project are worth discussion.

The Alberta government has been a champion in Washington of Keystone XL, TransCanada’s $8 billion pipeline awaiting a decision by U.S. President Barack Obama. Previous provincial leaders have joined the Canadian government in raising awareness about oil-sands development and regulation to try to win U.S. support for Keystone, a line proposed in 2008 that would transport Canadian crude to the U.S. Gulf Coast.’’

Under the NDP, the corporate tax rate will increase to 12 percent from 10 percent. Notley will form a committee to review royalties and has said she will support more refining of oil in the province, despite a commonly-held view by investors and companies that it isn’t profitable.

Minimum Wage

The new premier will also increase the minimum wage to C$15 an hour and impose stiffer environmental standards and monitoring, according to the party’s election platform. In addition, the NDP leader will ban gas drilling in urban areas. The NDP would phase out coal-fired power plants more quickly than federal regulations that limit them to a 50-year life.

Coal is the biggest contributor to the electricity supply in Alberta, where Westmoreland Coal Co., TransAlta Corp. and Teck Resources Ltd. are among producers.

Alberta and Saskatchewan lead the country in the use of coal for electricity, and both provinces have the highest per capita carbon emissions in Canada, at more than 60 metric tons, compared with 12.5 tons in Ontario, according to Environment Canada figures.

Still, Notley’s platform is a general guideline and the new premier will probably move carefully on economic policies, said Jim Lightbody, chair of the University of Alberta’s political science department in Edmonton. She wouldn’t be able to govern the province and make moves detrimental to the energy industry, he said.

“I would project that she moves carefully, cautiously, sensibly,” Lightbody said.

Half of U.S. Fracking Companies Will Be Sold OR Dead This Year

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford International Plc said.
There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.
There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton Co. announcing plans to buy Baker Hughes Inc. in November for $34.6 billion and C&J Energy Services Ltd. buying the pressure-pumping business of Nabors Industries Ltd.
Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.
Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35 percent this year, according to PacWest, a unit of IHS Inc.
While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek.
Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment.
“We go by and we see yards are locked up and the doors are closed he  said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

Crude glut: A lesson in supply and demand : Running Out Of Storage

A LESSON IN SUPPLY AND DEMAND

Oil traders are growing increasingly nervous that a glut of crude will send prices into a tailspin.
5 ways surplus oil will affect us

Oil storage tanks in the United States have been filling rapidly as companies there contribute to produce more crude than refiners can process. As a result, the price differential between U.S. crude and international sources has widened considerably, once again providing a “North American” discount to the market.

North American motorists will like it

With rising inventories in key locations, refiners will be able to access cheaper crude and will pass at least some of those savings along to consumers. But refiners on the east and west coasts have limited access to cheaper North American crude and won’t feel the benefit as much as those who live in the mid-continent.

U.S. producers will fear it

With more crude in storage, oil companies are essentially competing with their own past production. And as space in the tanks become more scarce, producers will be forced to sell their current output at steep discounts, driving prices down further. Even as demand picks up in response to lower pump prices, the huge volume of inventories will moderate any rebound in crude prices.

American politicians will debate it

The boom in U.S. crude production has already prompted talk in Washington about lifting the 40-year-old ban on crude oil exports from the lower 48 states. As producers fill up available storage, the calls to end the prohibition (which does not include exports to Canada) will grow louder and more desperate.

Canadian producers will be sideswiped by it

Canadian crude prices are set in relation to the price of West Texas Intermediate, which is set in Cushing, OK., site of a major storage hub that is brimming with crude. Since U.S. crude is a “light” variety, Canadian oil sands producers are still seeing healthy demand for their “heavy” barrels. But their prices are being hammered down.

American environmentalists will seize on it

In the long-running debate over the Keystone XL pipeline, the Canadian government has sold the project as contributing to U.S. energy security. Opponents of the pipeline will point to the surplus production as another reason that the pipeline is unnecessary and should be turned down

Calgary’s Enbridge Inc. owns the largest oil storage facility at the continent’s most important location for such things, but it is a commercial secret as to how close its tanks are to full capacity.

In the past three years, as the U.S. oil boom took off, Enbridge expanded its tank farm in Cushing, Ok., by a third so that it can now store 20 million barrels of crude. Cushing is a strategic location: It is a hub for the web of pipelines that crosses the U.S. plains but is also the continent’s largest crude storage centre.

In recent weeks, oil traders have grown increasingly nervous that a growing glut of oil could overwhelm North America’s capacity to store it, and that we’ll soon run out of places to put it. If that occurred, prices would go into a tailspin and the industry would be forced to shut off their wells until growing demand caught up to shrinking supply.

The storage picture is opaque – clouded by companies’ commercial sensitivities and time lags in U.S. government data. Enbridge stores crude for its own account and on behalf of customers who profit by buying oil at today’s low prices and then re-selling it at a higher price on the futures market for delivery at some later date.

“Demand for commercial tank storage today is high since the future expected price of oil is higher than it is today so investors are looking to build up supplies in North America,” Enbridge spokesman Graham White said in an e-mailed statement. “Enbridge works with commercial storage clients to accommodate their requirements.”

Market fears were heightened late last week when the Paris-based International Energy Agency said that rising U.S. supply “may soon test storage capacity limits.” The warning prompted another selloff in oil markets, with North America’s key benchmark, West Texas Intermediate (WTI), falling to six-year lows Monday, down 2 per cent to $43.82 (U.S.) a barrel. That’s the lowest price for WTI since the depths of the great recession of 2008-09.

“The U.S. is a-flood with oil and other production points around the world are not letting up in their output. The question is how much more oil can we take before the storage tanks hit capacity?” said Gene McGillian, senior market analyst at Tradition Energy in Stamford, Ct.

For Canadians, the storage issue has broad ramifications.

Another round of price cuts would further cripple Alberta’s already-struggling oil industry, and blow an even larger hole in the province’s finances, as Premier Jim Prentice prepares to release his first budget since taking office in September. Federal Finance Minister Joe Oliver has delayed Ottawa’s budget until at least April in order to get a better sense of how falling oil prices will hit the Canadian economy.

For consumers, the further decline in crude prices offers more relief at the pump with prices again dropping below $1 per litre in major Ontario markets, while at the same time, undercutting the value of the Canadian dollar.

But some analysts argue the fears are overblown.

“Yes, the U.S. has seen unprecedented growth in crude stocks this year,” said Afolabe Ogunnaike, a Houston-based analyst with Wood Mackenzie, an international consulting group. “But we still think there is significant amount of storage capacity available.”

He said U.S. inventories have gown by 66.5-million barrels since the beginning of the year, but estimates there is still room to store another 200-million barrels. Meanwhile, the pace of the stock build-up should slow as refineries, which were down for seasonal maintenance, resume operations to prepare for the summer driving season. And as the industry reacts to lower prices by cutting drilling and other spending, it will soon begin to show up in lower production.

The U.S. energy department reported in February that crude storage capacity is 60 per cent full, and the figure has climbed a few percentage points since then. But the situation varies widely across the country and within Canada. The largest tank farms are close to production facilities, as in Cushing, or Hardisty, Alta. Or on the U.S. Gulf Coast, which is close to Texas producers and Gulf of Mexico producers and serves the world’s largest refining centre.

The U.S. separates the country into districts known as “PADDS – for Petroleum Administration Defence Districts, which were created during the Second World War for logistical purposes. PADD 1, for instance, is the East Coast, which has a large refining sector that relies heavily on imported crude and has little storage capacity beyond the refineries themselves. The East Coast market for petroleum products heavily influences the pump prices paid by consumers in Eastern Canada.

The key regions for storage are PADD 3, which includes the U.S. Gulf Coast, and PADD 2, which contains Cushing and the Midwest, where the vast majority of Canada’s record exports to the U.S. are headed. As of March 6, the U.S. Energy Information Administration (EIA) calculated that PADD 2 storage was 73-per-cent full, while PADD 3 was at 59 per cent. For technical reasons, many storage facilities can’t go above 80-per-cent capacity.

Oil storage tanks in Linden, N.J. are shown in this aerial file photo of Aug. 29, 2007. (The Associated Press)

The PADD 2 market is particularly important for Canadian producers, who have growing — but still limited ability — to reach the Gulf Coast. The International Energy Agency warned that should storage capacity in the Midwest reach its limits, Canadian exports would suffer.

However, refiners have invested heavily in equipment required to process the heavy-diluted bitumen that is produced in the oil sands and are keen to maintain those imports, said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.

Analysts note that Washington is working with out-dated numbers for storage capacity. The energy administration last updated its capacity estimates in September, and will do so again in March.

“Crude oil stocks are rising everywhere in North America,” said Hillary Stevenson, manager of supply chain network for Genscape, an energy-market consulting firm. “But there’s been considerable growth in capacity, especially on U.S. Gulf Coast since September . . . so things maybe aren’t as full as people are thinking, especially on the Gulf Coast. We do have some time to absorb this growing supply glut that we’re having.”

But there is still an incentive for investors to store crude, though companies such as Enbridge are raising prices at their tank farms. The speculators are taking advantage of a condition in the futures market called contango, when prices for immediate delivery or next month are considerably below those for later months.

On the market yesterday, one could buy a barrel of crude for April delivery for $43.79 (U.S.) a barrel, and then resell it for delivery a year from now for $55.55. So if storage for the year costs less than $12 a barrel, you stand to make a profit.

Earlier this winter, traders were anticipating the same type of transaction using supertankers. In 2009, an armada of supertankers are leased, filled with crude and left at anchored for delivery at higher prices later. But this year, international crude prices have not seen the same steep differential in the futures markets, so the sea-borne market never developed.

But there is another source of “storage” that is not as accessible as the oil in tanks but still represents a future challenge for producers. In the prolific shale oil fields of Texas and North Dakota, many companies are drilling wells but not doing the final work need to bring them into production.

As above-ground storage begins to reach its limits, more firms will decide not to complete the wells they are now drilling. The glut will be buried, but not dead.

 

BMO Warns Oilsands Must Cut Costs

The cash costs of oilsands producers must shrink to remain competitive in the “new normal of lower oil prices for longer,” BMO analyst Randy Ollenberger said in a note Monday.

Canadian heavy oil prices fell below US$30 for the first time in more than six years as Bank of Montreal warned that oilsands producers must cut costs.

Most producers will continue producing from existing operations and complete projects under construction

Ryan Jackson/Postmedia News
Energy companies are tightening their belts in the oilsands, slashing budgets, scrubbing and delaying projects, and laying off scores of contract workers.

With oil hovering around US$50 a barrel, the bounce is suddenly missing from Fort McMurray’s step.

Hotel rooms, typically tough to find, are readily available. About $100,000 has been trimmed from the average selling price of a single, detached home in the past year. People are lining up at the food bank in numbers previously unseen. More staff is being hired and food drives are being planned in hope of keeping up with demand. More donations than ever are coming in, but nowhere enough, executive director Arianna Johnson says.

 

Western Canadian Select fell 59 US cents to US$29.85 at 12:28 p.m. Mountain time, the lowest since Feb. 18, 2009, according to data compiled by Bloomberg. The grade’s discount to U.S. benchmark West Texas Intermediate narrowed 80 US cents to US$13.60 a barrel. Crude futures settled at a six-year low of US$43.88 in New York on concern record supply may strain storage capacity.

The cash costs of oilsands producers must shrink to remain competitive in the “new normal of lower oil prices for longer,” BMO analyst Randy Ollenberger said in a note Monday. The majority of Canada’s crude comes from oilsands in Northern Alberta and is among the most expensive to produce. Companies including Royal Dutch Shell Plc and Cenovus Energy Inc. have cut costs and suspended projects as prices plunged.

“You will see companies do another round of budget cuts if oil settles in the low 40s,” Ollenberger said.

Crude from oilsands is produced from bitumen, which must be dug or pumped out of the ground after it’s melted by steam. The bitumen is upgraded to lighter synthetic crude or is diluted with condensate and shipped by pipeline or rail car thousands of miles to refineries, most in the U.S.

Shell withdrew an application to develop the Pierre River mining project to focus on existing ones, Shell Canada President Lorraine Mitchelmore said in a statement last month. Cenovus suspended construction on Christina Lake Phase G with work to resume when market conditions improve, Chief Operating Officer John Brannan also said last month. Both companies, along with Suncor Energy Inc, have also cut staff to reduce costs.

Cost Savings

Major sources of costs savings that may have been overlooked include lower royalty rates and reduced blending costs, Ollenberger said in his note Monday. Per-barrel costs can be cut with increased production through existing facilities, he said.

Canadian Oil Sands Ltd., among the largest five producers, needs a WTI price of about US$50 a barrel to sustain business with no production declines, Chief Financial Officer Robert Dawson said March 11. Smaller companies are facing financial troubles. Southern Pacific Resource Corp. has defaulted on debt and Connacher Oil and Gas Ltd. says it’s in danger of not being able to pay creditors.

Canada’s oilsands production will grow 8.3% this year, the country’s National Energy Board said Feb. 10. Projects to extract bitumen require billions of dollars of up-front investment.

Most producers will continue producing from existing operations and complete projects under construction, Jackie Forrest, vice president of Calgary-based ARC Financial Corp., said in a Jan. 29 e-mail.

WTI crude would have to stay between US$30 and US$35 a barrel for at least six months before wells and mines are shut, Dinara Millington, a vice president at Canadian Energy Research Institute, said Feb. 19.

Penn West Petroleum Ltd. : Long Time of Hardship Continues

Image result for oil price cartoons

Dividend: Q1 2015

CDN: $0.01

TSX : PWT

$1.81

Change : $ -0.10 (-5.236%)
Vol : 4701451

NYSE : PWE

$1.42

Change : $ -0.10 (-6.579%)
Vol : 7229947

Tremendous potential – but they used to say the same thing about me.The rout in crude oil is turning out to be more than just a blip, and producers that are feeling the pinch may have to start selling.

The struggle to outlast sub-economic oil prices took another ugly turn Thursday as Penn West Petroleum Ltd. all but eliminated its once-hefty dividend and started discussions to ease the terms of its debt.

The restructured company has gotten so lean, CEO David Roberts said it now offers great “torque” on an oil price recovery.

“The management of this company and the board are strongly aligned with shareholders, with significant amount of personal capital at risk, and focused on redefining oil and gas excellence in Canada,” Mr. Roberts said on a conference call to discuss fourth-quarter results.

But the latest measures continue a long time of hardship at Penn West, which over the past year has undergone a major restructuring to cut costs and re-invent itself as a low-cost producer focused on three conventional light oil plays in Alberta, then had to address an accounting scandal involving previous management that led to a re-examination of financial results for 2014 and four previous years.

By December, just after Mr. Roberts thought the company had finally “turned the corner,” oil price collapsed and “served to overpower our 2014 results,” he said in the call.

Though “we think our path to success is firm,” the company ended the year with a loss of $1.77-billion in the fourth quarter, compared to a loss of $675-million in the same year-ago period, largely due to impairments of goodwill and property, plant and equipment tied to the decline in commodity prices.

Cash flow shrunk to $137-million from $203-million in the same period a year ago.

“Looking ahead, clearly we as an industry are facing a dramatically different commodity price environment today relative to this time last year,” Mr. Roberts said in a statement.

“Operations aside, with crude oil prices ranging between approximately US$43 per barrel and US$55 per barrel since the beginning of 2015, there is now a clear focus on leverage and the balance sheet. At year-end 2014, Penn West was well within its debt covenants, with a senior debt to EBITDA ratio of 2.1 times against a limit of 3.0 times and we were undrawn on our $1.7 billion credit facility.

However, if crude oil prices persist below US$50 per barrel in to the second half of 2015, we do foresee potential challenges complying with our covenants.”

That’s why the highly leveraged company started discussions with lenders and note holders, said CFO David Dyck.

It now has an agreement in principle to ease its financial covenants that involves reducing its $1.7-billion bank facility to $1.2-billion and using up to $650-million of proceeds from asset sales to pay down debt.

In a research report, RBC Dominion Securities Inc. analyst Greg Pardy said the “relaxation of the covenants is positive and will provide the company with additional time to proceed with asset dispositions.” Penn West shares closed at $1.91 in Toronto, down 2¢. The stock has lost 80% of its value in the past year.

To save cash, Penn West, which had a large retail investor base from its past as an income trust, is cutting its dividend to 1¢ a share, from 3¢ expected for the first quarter, down from 14¢ in the fourth quarter of 2014. The company said the reduction is temporary.

Companies across the Canadian sector have cut spending, laid off staff and raised equity and debt to cope with sub-US$50 a barrel oil prices, the result of a price war instigated by Saudi Arabia to take back market share from North American producers. With the latest measures, Penn West is taking the belt-tightening to a new level.

Mr. Roberts said lenders’ decision to “stand with us” through tough times is a result of the company’s successful restructuring.

Penn West sold $1 billion in non-core assets as part of its restructuring and would like to sell more. It plans to invest $650 million this year, primarily directed at its Cardium and Viking core areas, and deliver production of about 100,000 barrels per day.

The adjustments may not even be over. With oil price volatility continuing, spending will be reviewed again in the spring, Mr. Roberts said.

Oil Continues to Fall, and OPEC Isn’t Helping

February 23, 2015

It was another down day in the oil market: Crude prices fell more than 2 percent, with WTI finishing Feb. 23 below $50 a barrel for the first time in almost two weeks.For a moment, things looked like they might go the other way. OPEC President Diezani Alison-Madueke said in a Financial Times report that she would call an emergency meeting of OPEC if prices continue to fall. Oil prices were buoyed by the news—briefly—until they fell again.

In addition to being president of OPEC, Alison-Madueke serves as Nigeria’s oil minister, and cheap oil has helped sow crisis in her country. The Nigerian currency, the naira, is at all-time lows against the dollar, terrorist attacks by the Islamist group Boko Haram have worsened, and national elections were recently postponed more than a month. It makes a lot of sense that Nigeria would want to put a floor under oil prices by hinting at an OPEC resolution—even if such a resolution is unlikely.

Some reasons for doubt:

  1. Another OPEC delegate told Bloomberg News today that OPEC has no plans to hold an emergency meeting. OPEC is scheduled to meet in June, and all 12 members must agree to hold a special meeting in the interim.
  2. It’s unlikely that Saudi Arabia, OPEC’s biggest producer, would agree to such a meeting, not to mention actually cutting production. Saudi Oil Minister Ali Al-Naimi has said OPEC won’t change course even if prices go to $20 a barrel.
  3. Even if a meeting were called, it’s not clear whether OPEC is capable of mustering support to cut sufficient production to boost prices. It would require imposing a shrinking market share for oil-dependent economies that are already stretched.
  4. Even if OPEC members were to cut production enough to increase oil prices, how would the legions of U.S. oil producers respond? Probably by putting all those idled rigs back into action, adding more supply to the market and undermining OPEC’s efforts.

In oil markets, perception is everything. It’s very possible that today’s talk of an emergency meeting was simply meant to reassure unstable markets. Sometimes the threat of taking action removes the need for taking action.

If that’s what happened, it comes at a risk for OPEC. The fact that markets brushed off the threat so quickly may imply that OPEC’s threat is losing credibility.